Best CFD Forex Brokers
Contract for Difference (CFD) is a globally renowned tool of trading derivatives, which allows international currency traders and seize opportunities in the fluctuating prices of various financial markets in the world.
The currency trading instruments that are a fundamental aspect of the CFD’s functioning include; bonds, shares, indices, commodities, currencies, and stocks treasuries. Being that CFD Forex brokers allow trade on margin as leveraged products, traders are able to sell or buy based on the prediction of the respective fall or rise of market prices depending on the information offered by their broker firms (and they do not need to purchase the underlying asset).
Traders that use CFD trading get to forgo the cost and taxes that are accompanied by owning assets, for instance, commissions on debits and credits, account management charges or even stamp duty. Traders use CFD to mitigate their portfolio’s exposure to risk; which it achieves by enabling their diversification that allows traders to conduct business across different markets. CFD forex brokers’ global popularity among traders arises from the various benefits they offer but the primary reason is that that they help save money. The article reviews a couple of Forex brokers that are available in the table below.
- Forex Brokers
- Binary Options Brokers
- CFD Trading Brokers
- MT4 Forex Brokers
- MT5 Forex Brokers
- Mobile Forex Brokers
- Spread Betting Brokers
- UK Forex Brokers
- Swiss Forex Brokers
- Australian Brokers
- PAMM Brokers
- ECN Brokers
- US Forex Brokers
- Cent Account Brokers
- Scalping Brokers
- Lowest spread Forex Brokers
- VPS Forex Brokers
- Segregated Accounts Brokers
- 5 digit Brokers
- Hedging Brokers
- Banks with Forex Traiding
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Brief history of CFD trading in the world
The first instance of CFD trading took place in London during the 1990s. At this time, they were mainly adopted by hedge funds that sought to short sell the market without purchasing the underlying commodities themselves. It was also a great was for these hedge funds to use high leverages and place large trades that they could easily execute in the underlying market. One of the primary motivations of setting up the CFD market was the need to evade the UK stamp duty. At the time, CFDs offered an excellent opportunity for traders to transact in 1000s of financial markets around the world while at the same time avoiding the stamp duty. Although individuals could trade in the CFD markets, it wasn’t until the technology boom of the 90s and early 2000s that this form of trading became widely accepted. Since there was an increase in the number of markets that people could use to trade CFDs, this form of trading spread widely to other financial centers around the world. To illustrate the size of CFD trading, about one thirds of the volume traded on the London Stock Exchange can be attributed to CFD trading.
About CFD Trading
CFD trading involves the trading of given units of particular market instruments that includes; commodities, indices, currency pairs, stocks, shares, treasuries, and bonds among others. The selling or buying of these units depends on the CFD trader’s prediction on the rise or fall of the market prices of these instruments. The trader, therefore, does not need to buy sell or even own the underlying asset which mitigates the cost and yet bares potential to earn a profit.
The profit is earned based on the difference between the buying and selling prices of the units from the CFD instruments, this difference is what forms the spread. The spread, being the basic payment for CFD trading, with its narrowness determining how close a trader’s price is likely to move in their favor. Thus a trader gains more in the value of CFD units they buy or sell if the price of the trade instrument works in their favor. However, if the trade instrument’s price goes against the trader’s unit buying and selling price then there is the incurrence of loss which stretches out to the trader’s deposits.
Most Forex broker firms provide CFDs as part of their server products, some even offer it alongside currency pairs which enable efficiency since the trader does not now need to open separate accounts for both. This article has provided a compilation of Forex broker companies that offer CFD trading.
It is imperative to note, however, that the regulatory bodies of the Forex market with jurisdiction to the United States prohibit CFD trading, according to Securities and Exchange Commission, on Over the Counter financial instruments. So, for international traders residing and operating within the US, this article is not for you.
What to consider when choosing a CFD broker
Although the trading of CFDs was initially done publicly on stock exchanges, their growth saw the CFD models change into proprietary platforms that are not easily regulated. The advent of the internet and mobile technology led to a change of the CFD business model whereby the CFD market became a closed platform that is fully owned y private entities. Although there are regional and national regulators to oversee and impose restrictions on the trade, the threshold of having a license is quite low. It thus becomes necessary to conduct your own due diligence before adopting any platform. Here are a couple of things to consider when selecting a CFD broker.
Presence of a Demo account- Like forex, CFD trading can be quite a complex process which requires constant practice. Your CFD broker should give you the opportunity to try out any ideas or trading regimes that you may have but it is advisable to do this with a simulation account. It has been common knowledge that one needs to practice at least 10,000 times before they can master something. This also applies to CFD trading.
Great customer support- Although this can seem like a trivial factor when choosing a CFD forex broker, it is imperative to put this consideration when vetting the best CFD brokerage company. A key point to consider is whether your trades are executed perfectly as this might predict how often you will need to call your customer representatives. Also, confirm that the customer representatives do what they promise. Do they promise to be available ‘24/5’? Ensure that this is true as you might one day need them at odd hours.
Minimum and maximum leverage- Another important consideration is the multiple of your initial funds. This is especially important for experienced traders who can use leverage to their advantage. One of the primary reasons why many novice traders lose their invested funds is due to over-leveraging of capital. It is thus imperative to use this feature wisely as it may end up sinking your invested sum.
The variability and size of spreads- It is crucial to understand the importance of the Bid/Ask spread as it will affect your profits especially if you have a high trading velocity. With CFD trading unlike FX trading, this variable will always depend on your volume and broker. With regards to this, it becomes necessary to communicate with your broker on the offers available and how to get them.
Pros and Cons of CFD trading
A higher leverage
A key benefit of trading CFDs over other assets is the ability to get a higher leverage in comparison to the other forms of trading. The average leverage in the trading of CFDs may be as low as 2% but the margin can equally rise to 20%. Such leverage may even go higher depending on the regulatory framework in your country and the broker used.
Access to major global markets
Unlike trading stocks or bonds, you will find that trading CFDs allows you to trade in virtually all markets. Most CFD forex brokers will give you the chance to trade products in all the world’s major markets.
While it is easy to find a number of markets that bar traders from engaging in a number of practices, these are almost inexistent in the CFD trading market. For example, you can find that your market prohibits you from shorting the market. In the case of CFD trading, however, the instruments can be shorted whenever you desire since you do not own the underlying asset.
Few day trading requirements
It is not uncommon to find markets that require a number of requirements for trader to day trade. These markets may even set the limit on the amount that can be traded. CFD traders are not bound by these limiting requirements and traders can day trade at any time and with the amount that they wish. Most CFD trading account will allow you to day trade for as little as $1000 but the standard day trading deposit is mainly $2000 to $5000.
The ability to get a variety of assets to invest is also a critical advantage of trading CFDs. Since you will not own the underlying assets, it becomes easier to offer a wide pool of markets to invest in. What are some of these assets? You may wonder. Treasury bills, currencies, commodities, stocks and indices are some of the alternatives that you have as a CFD trader. Variety of trading options will not only give you the ability to diversify your portfolio but will also allow you to spread risk.
Although CFDs offer a great alternative to invest in comparison to the traditional asset classes, one potential disadvantage is the high spread that traders have to pay. As a CFD trader, you will have to pay spreads in both the entries and exit which makes it difficult to get a profit from a small move in the CFD markets. Profits in the traditional markets are normally minimized by high fees, commissions or high minimum deposit requirements. In the CFD markets, however, are trimmed by the spreads that traders have to pay.
Lack of a comprehensive industry regulation
Unlike the FX markets, CFD trading is not highly regulated. Most traders will select a broker solely based on their reputation, active years in the market and their financial strength. While there are a number of credible CFD brokers in the market, it is imperative to carry out due diligence before investing with a single FX brokerage firm.
Popular CFD Brokerage Firms
AVAtrade is a global Forex giant, an internationally recognized and regulated Forex broker firm which also offers CFD trading. Since its establishment in 2006 AVAtrade has grown tremendously over the years and is well known mostly for its trade volumes that exceed $60 billion a month, not to mention its collection of prestigious awards in recognition of their achievements within the global market. In its vast product palette, AVAtrade Forex brokers include products such as; Forex majors, exotics, and CFDs. Within its CFD trading service, this firm offers one of the largest varieties of markets and trading instruments compared to its competitors. Variety aside, the AVAtrade broker firm offers a relatively broader range of its CFD instruments with units such as 16 commodities, 21 ETFs, 20 worldwide indices, and hundreds of individual shares from different parts of the world. Check our AvaTrade Review on our website!
The eToro Forex broker firm is well known for its world-class social trading technology, which is a service offered that makes it stand out and puts ahead of its competitors. With over 4.5 million users the eToro’s social trading technology connects traders from over 170 countries around the globe, allowing them to utilize social trading benefits. eToro offers a standard variety of CFDs more specifically on the European and US stocks and even includes in its trade instruments, cryptocurrency more specifically bitcoin. Nonetheless, eToro’s 4.5 million clientele, all connected via social technology, is what makes its CFD service ideal especially for new players in the global trade market.
ForexTime is a relatively new name when placed among other global giants in the Foreign exchange market yet it is in its own right a giant in the global Forex market. Known for its affordable multi-featured brokerage not to mention world-class customer service which has earned it global recognition and awards during its short period in the game. The Top Customer Provider 2016 winner boasts of a fully established trade platform equipped with numerous trading options, a variety of software and various client services as well as educational provision all meant to cater for the trading needs of their different types of clientele.
What makes the CFD service offered by this firm one of a kind is its clientele base, which includes six hundred thousand customers. That vast network of clients forms a sturdy foundation of traders for a CFD market.